How Might They Impact the UK and Your Finances?

US President Donald Trump has announced new import duties on goods entering the United States, escalating the ongoing global trade conflict.

The UK now faces a 10% tariff on all goods shipped to the US, a move Trump claims is in retaliation to British tariffs on American products, though there is considerable uncertainty regarding how this will impact British consumers.

Here’s how your finances might be influenced.

The tariffs Trump has introduced will primarily be absorbed by businesses importing goods to the US.

According to Clarissa Hahn, an economist at Oxford Economics, this means that American consumers are likely to feel the initial burden in the form of higher prices, as US companies are expected to pass on the additional costs.

However, UK consumers could also bear the brunt of these tariffs, which are set to take effect on April 5.

One pathway is through the value of the pound and exchange rates, which influence the expenses for UK enterprises importing goods and raw materials from overseas. If these import costs rise, those additional expenses might be passed on to consumers in the form of increased prices.

After Trump’s announcement on Wednesday, exchange rates for the dollar and pound demonstrated volatility. Should the dollar’s value increase, as some economists suggest, this could lead to escalating import costs for British businesses.

Higher UK prices might also prompt a demand for increased wages among workers, which would further escalate costs for businesses, according to Ahmet Ihsan Kaya, a principal economist at the National Institute of Economic and Social Research.

Hahn also indicates that if the UK government responds with its own tariffs on American imports, there is a potential risk of UK prices climbing as businesses may pass on the additional costs to consumers.

Conversely, some economists suggest that prices may initially drop due to Trump’s tariff decisions.

Swati Dhingra, an economist and member of the Bank of England’s monetary policy committee, has proposed that companies that typically send their products to the US might redirect them to other destinations like the UK, where tariffs are less severe, potentially resulting in an influx of cheaper goods in the UK market.

“The proposed tariff levels are likely to motivate exporters to the US to reduce their prices to maintain demand,” she posits.

British exporters targeting the US market are expected to experience the most significant adverse effects from these new policies.

Last year, the UK exported nearly £60 billion in goods to the US, with machinery, automobiles, and pharmaceuticals being the most prominent commodities. Other significant exporting sectors include fishing and electronics.

Should American demand for UK products decline due to these additional import costs, it could squeeze profit margins and ultimately result in layoffs in the UK unless companies can locate new markets outside of the US.

The Institute for Public Policy Research has indicated that Jaguar Land Rover and the Mini factory in Cowley, Oxford are particularly vulnerable to US tariffs on vehicles.

According to their estimates, over 25,000 jobs within the UK automotive sector could be under threat if a 25% tariff takes effect Thursday, with one in eight UK-built vehicles being sent to the US.

The pharmaceutical sector also heavily depends on trade with the US, as noted by Hahn from Oxford Economics.

The US accounts for 40% of AstraZeneca’s sales and 50% of GSK’s. While both companies have production facilities in the US, essential ingredients for vital medicines and vaccines are often transported between the UK, EU, and US. Tariffs could impose multiple tax burdens on these products as they cross borders for production.

Additionally, there are concerns regarding how tariffs interact with price controls set by the NHS and other health organizations when procuring medications in bulk.

UK interest rates influence the costs households incur for borrowing, impacting mortgages, credit card debt, and loans. Higher rates also enhance returns for savers.

At present, rates stand at 4.5%, but economists anticipate two additional cuts by year’s end.

Nonetheless, the Bank of England has cited US tariffs as a factor for its decision not to reduce rates further last month, stating that global trade uncertainty has “intensified”.

Should prices remain elevated long enough to have a significant impact on inflation rates, this could mean that interest rates stay higher for an extended duration.

Andrew Bailey, the governor of the Bank of England, noted that the institution’s primary duty is “to ensure that inflation remains low and stable,” and they will be “closely monitoring” the repercussions of the tariffs.